THE INVESTMENT COLUMN : Car sales put brake on Inchcape

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The market shrugged off yesterday's tidying-up deals by Inchcape in Malaysia and at home, where it sold its Proton import concession back to the manufacturer.

The shares closed 3p lower at 339p as the market focused on interim figures, expected at the end of September, and due to show halved profits for the six months to June.

Although well above the 278p at which the shares bottomed out in the spring, that still represents a fall of 46 per cent from the high of 630p reached in 1993.

Inchcape is struggling to persuade investors that it is anything more than just another motor dealer, operating in a flat market and with the added millstone of buying its product in yen and selling it in pounds and dollars.

Of course, the company is more than cars - it has a marketing operation and provides insurance, shipping and testing services, all of which are forecast to grow, if not smartly then at least respectably, this year. The company has access to some of the fastest-growing markets in the world.

But two-thirds of Inchcape's business is cars, importing as well as retailing, and 60 per cent of that is Japanese-related, so the state of the automotive markets around the world and, as the chart shows, the relationship between the yen and other currencies really matter.

Arguably, things have perked up on the currency front since the last of a string of profits warnings in the spring, with the dollar now worth almost 100 yen against the 80 it would buy four months ago. Given the close relationship between Inchcape's share price and the US/Japanese exchange rate, it could even be argued that the share price is yet to fully catch up with the dollar's re-rating.

But the shares also reflect the underlying state of car markets, which are unexciting. Sales for August in the UK, traditionally the biggest- selling month of the year as new registration prefixes reach the showrooms, are expected to be down on last year. The same is forecast for the year as a whole.

Inchcape is pinning its hopes on new ranges being rolled out by all the makes it represents. These are expected to be competitive at exchange rates as unfavourable as 80 yen to the dollar and certainly will be so at current rates if they persist. Cost-cutting, which involved the loss of 2,000 jobs earlier this year, at a cost (and subsequent annual saving) of pounds 30m, should start to kick in next year, as well.

After the shares' recent rise, however, a lot of that good news is reflected in the share price, especially as profit forecasts for Inchcape seem to move relentlessly lower. Williams de Broe expects pounds 159.5m this year, for earnings per share of 21.9p and a price-earnings ratio of 15.

That is quite high enough, even with the support of what looks to be a safe yield of 5.5 per cent.

Ladbroke still not up to scratch

Yesterday's profits forecast downgrade by BZW capped a pretty awful summer for Ladbroke, the bookies to hotels group. What the lottery hasn't done for it, the hot weather has and investors are approaching tomorrow's interim figures with trepidation.

Having gradually rid itself of unwanted businesses over the past 18 months (Texas Homecare and a lot of property), Ladbroke is a more focused, leaner business than it ever was under Cyril Stein. Which would be a good thing if the three divisions left were all performing.

The trouble is, the two main arms are struggling. The betting business has been hammered by the success of the National Lottery, which is still taking pounds 100m a week of "lazy fivers" out of the economy, and the hot weather has disrupted the racing schedule as many owners have been reluctant to race their horses on rock-hard ground. That has led to smaller fields, making favourites more likely to win and bookies more likely to lose.

In hotels, the Hilton chain has been undermined by its failure to expand as quickly as rivals and most recently by suggestions that Tommaso Zanzotto, the hotel chief executive who only joined 18 months ago, is set to leave the group. Worries persist about a rights issue to fund US expansion.

Given all this uncertainty, and a steady stream of downgrades, it is hardly surprising that the share price has drifted from more than 200p in the spring of 1994, to yesterday's 164p. BZW was the latest to join the fray, cutting its full-year forecast from pounds 168m to pounds 150m.

There is good news on the horizon, but it is doubtful whether it will be enough. The spend on scratch cards, partly to blame for 200 redundancies at Ladbroke's racing division, has declined from about pounds 40m a week after their launch in March to less than pounds 30m, but Camelot, the lottery operator, is planning new prizes that will keep the pressure on the bookies.

The bookmakers hope for government help with a possible cut in betting duty from 7.75 to 5.75 per cent, but Ladbroke and its peers must accept the lottery will not go away and learn to fight it rather than count on their whinges being heard. Analysts expect half-year profits of pounds 52m-pounds 67m. For the full year, BZW is forecasting pounds 155m, which puts the shares on a forward rating of 19. Still expensive.

Gartmore at


Gartmore, the UK's fourth-biggest fund manager, has been a cracking investment for Banque Indosuez. Acquired for pounds 155m in 1990, the French bank's remaining 75 per cent stake is still worth close to pounds 320m after pounds 76m was raised from a partial float in 1993.

Expected to go through its own restructuring soon, the Suez group that owns the bank must be sorely tempted to cash in after such a performance. Hopes that it will do so have sent shares in Gartmore soaring from just above 170p since last month, but they sank back 7p to 211p yesterday as disappointing interims refocused the market on reality.

Pre-tax profits slid from pounds 17.4m to pounds 16.2m in the six months to June, with the half-way dividend held at 1.75p, despite earnings per share being cut from 5.6p to 5.2p.

Gartmore blamed poor sales of unit trusts and heavy investment in staff and systems for the less-than-sparkling figures.

The group earns around three times the margin on unit trusts than it can achieve on pensions sales, so a slump in unit trust sales from pounds 62m to pounds 38m in the first half hurt.

Meanwhile, operating expenses have risen by pounds 2.23m to pounds 28.2m, weighed down by an office in Frankfurt to spearhead the move into Europe, while Gartmore is busy training salesmen at NationsBank, the fourth-largest bank in America, following last year's link-up.

The problem for Gartmore is that its high-margin British retail business, mostly unit trusts, remains less than 5 per cent of its pounds 23.3bn funds under management, while the operation in the United States could take 10 to 15 years to bear fruit.

More important for the short-term outlook is that profits fell in the latest period despite a 12 per cent rise in total funds under management and an all-share index up close to 7 per cent.

Even after yesterday's fall, forecast full-year profits of pounds 34m would still put the shares on a prospective multiple of 19. NationsBank, with an option to buy a 10 per cent stake at 200p, would probably have deep enough pockets to bid if Suez wanted to sell. But that looks unlikely and the shares are fully valued.


Turnover pounds Pre-tax pounds EPS Dividend

Astec (I) 312m (174m) 9.9m (7.4m) 2.6p (2.03p) 0.5p (0.4p)

Gartmore (I) 42.5m (42.4m) 16.2m (17.4m) 5.2p (5.6p) 1.75p ( 1.75p)

Golden Vale (I) Irpounds 283m (Irpounds 256m) Irpounds 8m (Irpounds 4.4m) Ir4.3p (Ir2.3p) Ir0.66p (Ir0.6)

Johnson Fry Holdings (I) 13.7m (16.6m) 1.3m (2.3m) 5.3p (8.9p) 2p(-)

Moorfield Estates (I) 4.8m (2.3m) 660,000 (459,000) 0.77p (1.01p) 0.5p (0.5p)

Oriel Group (I) -(-) 2.1m (2m) 4.5p (5.7p) 2p (2p)

Parambe (I) -(-) 13,400 (17,000) 0.16p (0.21p) -(-)

Sanderson Bramall (I) 245.2m (190m) 4.25m (3m) 8.7p (6.3p) 1.33p (1p)

(Q) - Quarterly (F) - Final (I) - Interim